What is Asset Protection

If you’re interested in protecting your assets, you’ve come to the right place. The number of reasons to protect your assets are higher now than at any time in history.

Protect your assets.

If you have done well, worked hard, have significant assets and perhaps own your own business, you may be at serious risk of a lawsuit knocking at your door.

Through no fault of your own, you could have a lawsuit filed against you. Perhaps your son’s best friend borrowed your car without you knowing it. If he crashes into a car or pedestrian, you may be considered liable for any resulting injuries or death.

Perhaps wet umbrellas after a rainstorm caused someone to slip and fall in a building you own before there was time to dry the floor. Yes, the law in most states says that you are only liable, but only if you could have reasonably known a dangerous situation existed, and didn’t take reasonable steps to protect the public.

In situations like these, whether you are liable to damages totaling thousands (or perhaps millions) of dollars depends not only on your state statutes, but on the interpretation of those statutes by local judges and juries.

Don’t be unprotected before potential damaging events.

You could be the target of a lawsuit through no fault of your own.

The average well-off person may have 5 to 7 lawsuits filed against him/her in a lifetime. Five to seven. If you calculate your working years from 25 to 65, that’s an average of 40 years in a working life. In other words, you may be on the receiving end of a lawsuit an average of every 6 to 8 years.

We live in a highly litigious society. People feel that filing a lawsuit is a normal and natural reaction to the vagaries of life. Although we only claim 5% of the population of the world, people in the United States file 94% of all the world’s lawsuits.

In times like these, it makes sense to protect your assets. This Quick Guide to Asset Protection is designed to give you a brief overview of the forms of asset protection available and common terms used in discussing assets.

What Is Asset Protection?

The term “asset protection” sounds quite simple, doesn’t it? It is. It refers specifically to a plan developed and enacted to keep your assets (real estate, stocks, bonds, and cash, personal property, and any other assets) safe against potential litigants or creditors.

These potential litigants or creditors could attempt to lay claim to your assets or bring a lawsuit against you for anything from a defaulted mortgage to a lawsuit for personal injury in a car accident; even if the litigant caused the collision. Additionally, frivolous lawsuits are often brought for discrimination, defamation, emotional abuse, mental anguish, workplace stress, etc.

When Is the Best Time to Begin an Asset Protection Plan?

It is never too early to begin asset protection planning, but there is a time when it is too late. Once a lawsuit or claim against your assets has been made, it becomes difficult and sometimes impossible to protect those assets without committing fraud.

The reason is simple. The law protects potential recipients of favorable legal judgments. Anyone who transfers assets with the intent to delay, hinder, or defraud a creditor or plaintiff is in danger of violating that law.

If a court deems an asset transfer to have been “fraudulent”, it may order a reversal of that transfer(s), putting those assets directly into the hands of the plaintiff or judgment creditor.

Asset Protection Terms

Asset protection uses several terms not in general usage. The following defines and gives examples of common terms.

Fraudulent Conveyance

Fraudulent conveyance refers to any attempt to transfer assets (stocks, bonds, real estate, or other property) to someone else in order to defer, hinder, or defraud creditors. As mentioned in the “What Is the Best Time to Begin an Asset Protection Plan?” section above, it may be deemed as fraudulent by the court and the assets recovered and given to the plaintiff.

A court may order the reversal of the transfer (or conveyance). In such cases, the recipient may be ordered to give any assets received to a successful plaintiff.

Suppose, for example you were concerned about a judgment creditor placing a lien against your personal residence. To avoid the lien, you decide to “sell” your house to your brother for $10 with the intention of “buying” it back when the threat has passed. A court could understandably consider the sale to be fraudulent, unwind the transfer and seize the property to satisfy the debt.

Charging Order Protection

Charging Order protection shields personal and business assets from judgments and claims made against an individual. Limited Partnerships and Multi-member LLCs are considered to have good charging order protection in most states. Therefore, assets held in well-drafted LLCs and Limited Partnerships can be protected from the claims and judgements of the owners.

For example, if a personal lawsuit is successful against a man who holds the majority of his assets in well-structured LLCs, the plaintiff may very well win the lawsuit, but would generally be unable to attach any of the assets or seize his interest in the LLC to satisfy the judgment. Placing a charging order (similar to a lien) against the man’s interest in the LLC may very well be the plaintiff’s only legal remedy.

A charging order does not give the plaintiff any rights or management role in the business entity. Depending on the LLCs Operating Agreement, the creditor cannot force a liquidation of assets, call for an election of officers, demand a distribution, or even petition for an accounting of LLC activities. Even though he won the lawsuit, the plaintiff may never receive money.

Corporate Veil

A Corporate Veil can protect business owner’s personal assets from the judgments and claims against the business. The goal in establishing strong Corporate Veil protection is to attract and absorb all risk within the business, leaving the shareholders, officers, directors, and managers of the business protected. Traditional corporations and LLCs are considered to have good corporate veil protection in most states.

For example, a woman who owns a small pizza restaurant is sued after a food poisoning incident. No deaths occurred, but several customers were hospitalized as a result of improper food handling. The business was structured as a LLC, kept good accounting records, had a separate bank account for business transactions, filed its taxes on time, and upheld the annual meetings required by the state. Unless there was fraud or personal negligence on the part of the owner, the lawsuit should be limited to the assets owned by the LLC.

Note that charging order protection protects assets from claims against the individual. Corporate veil protection protects assets from claims against the business. A good asset protection plan provides both charging order and corporate veil protection!

Conclusion

In today’s world, proper asset protection planning is a must. Our webinars, videos, and educational events provide methods to learn more about your options and methods to create an optimal plan. Enroll today for a Free Membership in our online archive of valuable information that can save your personal assets in today’s litigious environment.

In today’s world, an asset protection plan is a must. Our webinars, videos, and educational events provide methods to learn more about your options and methods to create an optimal plan.

About Protect Wealth

Whether you use a trusted attorney, accountant or adviser to manage your finances, it pays to understand exactly what is happening with your hard earned money. Don't leave the success of your estate plan to someone else. Make sure you know exactly how to protect your assets, reduce taxes and create wealth.
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